The Future of the New FLSA Final Rule

On December 1st, the Final Rule issued by the Department of Labor (DOL) updating the Fair Labor Standards Act (FLSA or Act) was set to go into effect.[1] The main revisions to the Act focus on highly compensated employees and the “white collar exemptions.” These changes originated from President Obama’s objective of modernizing and simplifying the FLSA in order to ensure fair pay for all workers. Specifically, the revisions increased the compensation requirements and changed job descriptions of highly compensated employees, in order to clarify the distinction between white collar employees entitled to overtime pay from executive, administrative, or professional employees.

By employing a new standard salary level, the annual compensation requirement for highly compensated employees increased 34% from $100,00 to $134,000. There is an additional provision that would require another update to the standard salary level in 2020. This increase proves monumental for many businesses who will now be required to compensate employees, who were exempt under the old rule, time-and-a-half for any overtime work they may complete. Additionally, many employers are faced with the burden of updating their employee classifications and responsibility descriptions to ensure compliance with the new rule.

Over twenty states and several business groups have brought suit against the DOL, arguing the new rule would significantly increase costs of both state governments and private employers. On November 22, 2016, U.S. District Judge Amos L. Mazzant III, from Texas, issued a nationwide preliminary injunction after concluding the plaintiff States and other business groups had established the elements necessary to grant the injunction.[2] Those elements included (1) a substantial likelihood of success on the merits; (2) a substantial threat that plaintiffs will suffer irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs any damage that the injunction might cause the defendant; and (4) that the injunction will not disserve the public interest.[3]

The main argument of the States is that the changes to the FLSA violate the Constitution because they seek to unduly regulate the States by requiring them to adopt wage policies that will have an adverse effect on States’ budgets. Taking into consideration the Chevron test, the court determined that the States had established a substantial likelihood of success on the merits. Under the Chevron analysis, a court first considers whether Congress had directly spoken on the precise question at issue.[4] If Congress has not expressed its intent, then the Court will defer the government agency’s interpretation unless it is arbitrary or contrary to the law at issue.[5] Since Congress claimed that it previously considered the overtime exemptions, the court concluded its analysis at the first step of the Chevron test. This significantly diminishes the DOL’s deference in interpreting the Final Rule.

As to the second and third elements required in order to support the granting of a preliminary injunction, a balance of the substantial threat of irreparable harm to the plaintiffs and any damage to the defendant, the court found that the States demonstrated that the balance of hardships weighs in favor of the preliminary injunctive relief.[6] The Sates argued that if the Final Rule went into effect, they would be required to expend significant public funds, resulting in interference with government service, administrative disruption, and an overall harm to the general public. But, the DOL failed to convey any harm it would suffer from a delay in implementation of the Final Rule.

Finally, the court determined that granting a preliminary injuction would best serve the public interest. In its analysis, the court recognized that the injunction would only delay the implementation of the Final Rule and not abolish it completely and the injunction is supported by the irreparable damage faced by the States with the Final Rule’s implementation.

The future of the new FLSA Final Rule hangs in the balance as the Trump Administration comes into office. With President-Elect Trump appointing Andy Puzder, an open opponent of increasing the minimum wage, as Labor Secretary, the implications of the pending litigation will be impactful. States and private employers alike will be awaiting further decisions from federal courts.